Oil Limits and the Economy: One Story, Not Two

The two big stories of our day are

(1) Our economic problems: The inability of economies to grow as rapidly as they would like, add as many jobs as they would like, and raise the standards of living of citizens as much as they would like. Associated with this slow economic growth is a continued need for ultra-low interest rates to keep economies of the developed world from slipping back into recession.

(2) Our oil related-problems: One part of the story relates to too little, so-called “peak oil,” and the need for substitutes for oil. Another part of the story relates to too much carbon released by burning fossil fuels, including oil, leading to climate change.

While the press treats these issues as separate stories, they are in fact very closely connected, related to the fact that we are reaching limits in many different directions simultaneously. The economy is the coordinating system that ties together all available resources, as well as the users of these resources. It does this almost magically, by figuring out what prices are needed to keep the system in balance—how much materials of which types are needed, given what consumers can afford to pay.

The catch is that the economic system is not infinitely flexible. It needs to grow, to have enough funds to (sort of) pay back debt with interest and to make good on all the promises that have been made, such as Social Security.

Energy use is very closely tied to economic growth. When energy consumption becomes slow-growing (or high-priced—which  is closely tied to slow-growing), it pulls back on economic growth. Job growth becomes more difficult, and governments find it difficult to get enough funding through tax revenue. This is the situation we have been experiencing for the last several years.

We might think that governments would be aware of these issues and would alert their populations to them.  But governments either don’t understand these issues, or only partially understand them and are frightened by the prospect of what is happening. The purpose of my writing is to try to explain what is happening in terms that people who are used to reading the Wall Street Journal or Financial Times can understand.

I am not an economist, so I can’t speak to the question of what economists are saying. I do know that what economists say tends to change from time to time and from researcher to researcher. For example, in 2004, the International Energy Agency prepared an analysis with the collaboration of the OECD Economics Department and with the assistance of the International Monetary Fund Research Department (Full Report, Summary only). That report said, “.  . . a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second year of higher prices. Inflation would rise by half a percentage point and unemployment would also increase.” This finding is consistent with the issues I am concerned about, but I expect that not all economists would agree with it. Oil prices are now around $100 per barrel, not $35 per barrel.

The Tie of Oil and Other Forms of Energy to the Economy

Oil and other forms of energy are used to power the economy. Historically, rises and falls in the use of oil and other types of energy have tended to parallel GDP growth (Figure 1).

Figure 1. Growth in world GDP, compared to growth in world of oil consumption and energy consumption, based on 3 year averages. Data from BP 2013 Statistical Review of World Energy and USDA compilation of World Real GDP.

Figure 1. Growth in world GDP, compared to growth in world of oil consumption and energy consumption, based on 3 year averages. Data from BP 2013 Statistical Review of World Energy and USDA compilation of World Real GDP.

There is disagreement as to which is cause and which is effect—does GDP growth lead to more oil and energy demand, or does the availability of cheap oil and other types of energy power the economy? In my view, the causality goes both ways. Oil and other types of energy are needed for economic growth. But if people cannot afford oil or other types of energy products, typically because they don’t have jobs, then energy use will drop. And if oil prices drop too low, we will be in real trouble because oil production will stop.

How Oil Limits Work

People tend to think of limits as working in the same manner as having a box with a dozen eggs. Once the last egg is gone, we are out of luck. Or a creek dries up from lack of rainfall. The water is no longer available, so we have lost our water source.

With the benefit of the economy, though, limits are more complicated than this. If we live in today’s economy, we can purchase another box of eggs if we run short of eggs, assuming markets provide eggs at a price we can afford. If the creek runs dry, we can figure out a different approach to getting water, such as buying bottled water or hiring a tanker to get water from a source at a distance and bringing it to where it is needed.

Oil limits are a kind of limit we often hear concerns about. Being able to drill oil wells at all and refine the oil into products of many kinds requires a complex economy, one that can educate engineers working in oil extraction and can build paved roads, pipelines, and refineries. The economy needs to be able to produce high tech equipment using raw materials from around the world. Thus, there must be an operating financial system that allows buyers at one end of the globe to purchase materials from the other end of the globe, and sellers to have the confidence that they will be paid for contracted products.

If a company wants to extract oil, it can almost always figure out places where this theoretically can be done. If a company can gather together all of the things it needs—trained workers; enough high tech extraction equipment of the right type; enough pollution-fighting equipment, to prevent oil spills and spills of radioactive water; and leases on land where drilling is to done, then, in theory, oil can be extracted.

In fact, the big issue is whether the extraction can be done in a sufficiently cost-effective manner that the whole economic system can be supported. Even if the cost of extraction “looks” fairly cheap, such as in Iraq, or in some of the older installations elsewhere in the Middle East, the vast majority of the revenue that is generated from oil extraction (often as much as 90%) goes to support the government of the country where the oil is extracted (Rogers, 2014). This revenue is needed for many purposes: desalination plants to provide water for the people; food subsidies, especially when oil prices are high because food prices will tend to be high as well; new ports and other infrastructure; and revenue to provide jobs and programs to pacify the people so that the government will not be overtaken by revolt.

A major issue at this point is the fact that most of the easy-to-extract oil is already under development, so companies that want to develop new projects need to move on to locations that are more difficult and expensive to extract (Bloomberg, 2007). According to oil industry consultant Steven Kopits, the cost of one major category of oil production expenses increased by an average of 10.9% per year between 1999 and 2013. In the period between 1985 and 1999, these same expenses increased by 0.9% per year (Kopits, 2014) (Tverberg, 2014).

When production costs are higher, someone loses out. It is as if the economy is becoming less and less efficient. It takes more people, more energy products, and more equipment to produce the same amount of oil. This leaves fewer people and less energy products to produce the goods and services that people really want, putting a squeeze on the economy. The economy tends to grow less quickly because part of the goods and services available are being channeled into less productive operations.

The situation of the economy becoming less and less efficient at producing oil is called diminishing returns. A similar problem exists with fresh water in many parts of the world. We can extract more fresh water, but it takes deeper wells. Or we have to ship in water from a distance, using a pipeline or trucks. Or we need to use desalination. Water is still available but at a higher per-gallon price.

Diminishing Returns is Like a Treadmill that Runs Faster and Faster

There are many ways we can reach diminishing returns. One easy-to-illustrate example relates to mining metals. We usually extract the cheapest-to-extract ores first. An important cost consideration is how much waste material is mixed in with the metal we really want–this determines the ore “grade.” As we are gradually forced to move from high-grade ores to lower-grade ores, the amount of waste material grows slowly at first, then dramatically increases (Figure 2).

Figure 2. Waste product to produce 100 units of metal

Figure 2. Waste product to produce 100 units of metal

We know that this kind of effect is happening right now. For example, the SRSrocco Report indicates that between 2005 and 2012, diesel consumption per ounce of refined gold has doubled from 12.7 gallons per ounce to 25.8 gallons per ounce, based on the indications of the top five companies. Such a pattern suggests that if we want to extract more gold, the price of gold will need to rise.

The economy is affected by all of the types of diminishing returns that are taking place (oil, fresh water, several kinds of metals, and others). Even attempting to substitute “renewables” for nuclear and fossil fuels electricity production acts as a type of diminishing returns, if such substitution raises the cost of electricity production, as it seems to in Germany and Spain.

If the total extent of diminishing returns is not very great, increased efficiency and substitution can act as workarounds. But if the combined effect becomes too great, diminishing returns acts as a drag on the economy.

Oil Increases are Already Higher than the Economy Can Comfortably Absorb

For oil, we can estimate the historical impact of increased efficiency and substitution by looking at the historical relationship between growth in GDP and growth in oil consumption. Based on the worldwide data underlying Figure 1, this has averaged 2.0% to 2.4% per year since 1970, depending on the period studied. Occasional years have exceeded 3%.

The problem in recent years is that increases in the cost of oil production have been much higher than 2% to 3%. As mentioned previously, a major portion of oil extraction costs seem to be increasing at 10.9% per year. To make this comparable to inflation adjusted GDP increases, the 10.9% increase needs to be adjusted (1) to take out the portion related to “overall inflation” and (2) to adjust for likely lower inflation on the portion of oil production costs not included in Kopits’ calculation. Even if this is done, total oil extraction costs are probably still increasing by about 5% or 6% per year—higher than we have historically been able to make up.

According to Kopits, we are already reaching a point where oil limits are constraining OECD GDP growth by 1% to 2% per year (Kopits, 2014) (Tverberg, 2014). Efficiency gains aren’t happening fast enough to allow GDP to grow at the desired rate.

A major concern is that the treadmill of rising costs will speed up further in the future. If it is hard to keep up now, it will be even harder in the future. Also, the economy “adds together” the adverse effects of diminishing returns from many different sources—-higher electricity cost of production, higher metal cost of production, and the higher cost of oil production. The economy has to increasingly struggle because wages don’t rise to handle all of these increased costs.

As one might guess, when economies hit diminishing returns on resources that are important to the economy, the results aren’t very good. According to Joseph Tainter (1990), many of these economies have collapsed.

Why Haven’t Governments Told Us About these Difficulties?

The story outlined above is not an easy story to understand. It is possible that governments don’t fully understand today’s problems. It is easy to focus on one part of the story such as, “Shale oil extraction is rising in response to higher oil prices,” and miss the important rest of the story—the economy cannot really withstand high oil (and water and electricity and metals) prices. The economy tends to contract in response to a need to use so many resources in increasingly unproductive ways. We associate this contraction with recession.

We have many researchers looking at these issues. Unfortunately, most of these researchers are focused on one small portion of the story. Without understanding the full picture, it is easy to draw invalid conclusions. For example, it is easy to get the idea that we have more time for substitution than we really have. Financial systems are fragile. The world financial system almost failed in 2008, after oil prices spiked. We are still in very worrisome territory, with many countries continuing a policy of Quantitative Easing and ultra low interest rates. We may have only a few months or a year or two left for substitution, not 40 or 50 years, as some seem to assume.

Of course, if governments do understand the worrisome nature of our current situation, they may not want to say anything. It could make the situation worse, if citizens start a “run on the banks.”

The other side of the issue is that if governments and citizens don’t understand the full story, they may inadvertently do things that will make the situation worse. They certainly won’t be looking long and hard at what collapse might look like in the current context and what can be done to mitigate its impacts.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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489 Responses to Oil Limits and the Economy: One Story, Not Two

  1. timl2k11 says:

    Get ready to cringe:

    HONG KONG (MarketWatch) — St. Louis Federal Reserve Bank President James Bullard said Thursday that the key risk for U.S. economy would be a bubble forming as the central bank removes monetary-policy accommodations, while he also raised concerns about financial stability in the U.S. economy. “I don’t see a major bubble right now, but one will form as we are trying to remove the accommodation in the years ahead, because that’s what exactly had happened in the 2004-2006 period,” Bullard told the Credit Suisse Asian Investment Conference in Hong Kong. “I do think that’s a key risk going forward,” he said. Bullard related the risk to the situation in 2006, the housing prices had already started to peak at the same time as the central bank was in a tightening cycle. “Just because you are moving away accomodation doesn’t mean the risk of bubble forming is going away,” he said. Bullard also emphasized that financial stability concerns are “looming large,” as policy makers are thinking about how to accommodate those concerns. He said macroprudential tools, which have been strengthened, can be used to address emerging bubbles. Bullard is a non-voting member of Federal Open Market Committee this year.

    Did you get that? A Fed lackey claiming the tightening of monetary policy caused the housing bubble! That is some special kind of stupid. Why didn’t they make this guy chairman?

    • Interguru says:

      He is not made chairman because he makes comments like this. He has been a voice of sense for a long time.

      • timl2k11 says:

        How does what he says here make any sense?

        • Don Stewart says:

          Dear timl2k11 and others
          The only way I can interpret Bullard with any sense is as follows:
          1. Given ZIRP, do current price levels for stocks and bonds make sense? ….and perhaps the answer is ‘yes’, provided you think the Fed can keep interest rates at zero for a very long time.
          2. But then, if the Fed decides to push interest rates up by making less credit available to the system, a ‘bubble’ suddenly comes into existence as the current prices are seen to be inflated relative to the newly rational prices in a world with higher interest rates.
          3. The ‘bubble’ pops and prices drop.

          Don Stewart

        • Interguru says:

          HONG KONG (MarketWatch) — St. Louis Federal Reserve Bank President James Bullard said Thursday that the key risk for U.S. economy would be a bubble forming as the central bank removes monetary-policy accommodations, while he also raised concerns about financial stability in the U.S. economy

          We already have bubbles in places like the art market where underemployed dollars are dispatched in search of investment opportunities.

          • xabier says:

            Hence the execrable Jeff Koons’ ‘Balloon Dog’, a 10 ft high shiny metal magician’s balloon trick, getting $53 million or so recently. Originally sold at $3 to 5 million I believe.

    • The Fed did manage to raise interest rates as home prices were already falling, making the situation worse–but that is not what Bullard is saying here.

      • timl2k11 says:

        Than what is he saying? Fed’s loose policy fueled the housing bubble. The tightening helped pop it. He’s suggesting that the tightening of Fed policy helped fuel the housing bubble, is he not? If so, that’s insane.

  2. Joe Driscoll says:

    According to a theory developed by University of Utah atmospheric scientist Tim Garrett, there is a direct relation between GDP expressed in dollars and energy consumption expressed in watts. The hypothesis says that this process is related to our rate of energy consumption through a constant value λ (9.7, plus or minus 0.3, milliwatts per inflation-adjusted 1990 dollar]. Video explores the historical evidence supporting this hypothesis:

  3. edpell says:

    Can someone tell me if this is correct? Does it really mean gasoline consumption is down 60%?

  4. edpell says:

    Here is a report by the eia that say the primary fuels for the US will be essentially unchanged in 2040. There is an increase of 3% for natural gas, 2% for renewables and 1% for bio-liquids, and a decrease of 5% for oil and liquids.

  5. Pingback: Gail Tverberg’s posts | Peak Energy & Resources, Climate Change, and the Preservation of Knowledge

    • As long as interest rates are near zero?

      • Stilgar Wilcox says:

        Yeah, and when Yellen stated interest rates may begin rising about 6 months after QE tapers to zero, there was a collective gasp on Wall Street. Evidently the thought of fun money going away was just too much for some. What I’m wondering is what kind of economy we will have with no freebies to stimulate growth? If the freebies and cheap oil are gone what are we left with? Debt?

  6. Paul says:

    Japan to Speed Up Spending as Consumers Flash Warning: Economy

    What is most interesting about this is that spending was expected to spike as people pushed forward purchases of big ticket items to avoid the imminent sales tax hike.

    It’s not happening – and this will only get worse once that tax is rolled out.

    Will Japan be the first domino to fall? A weakened currency — already very high oil prices — nuclear power shut down — looks like a perfect storm.

    Of course the answer is always more stimulus. Always more….

    • xabier says:

      The assumption of the economists – and hope of the politicians – is that we will always respond to ‘stimulus’, like Pavlov’s dogs. That’s when we don’t give way to ‘animal spirits’.

      A consumer saying: ‘I’m possibly going to be very, very broke tomorrow so there’s no way I’m buying anything today if what I have isn’t broken!’ is their worst nightmare.

      The cynicism of it is disgusting: recently a politician in Britain said that tax cuts should benefit ‘poor people’ because ‘low-income people always spend ALL their income.’ ! That’s not choice for those people, it’s a necessity.

      There’s something very disgusting morally about the well-paid and pensioned discussing the manipulation of the poor.

      Unfortunately for these ghastly economists and politcians, we are approaching the stage when poor people actually don’t have enough to spend even on basic necessities, and when poor people constitute and ever-larger % of the population. Good-bye consumer economy.

    • More stimulus in the future seems to be the answer. But how?

      • Paul says:

        Without a doubt they will do as they have done for two decades – announce even more stimulus – we were told the last round was the mother of all rounds – it was ‘courageous’ and Abe was brilliant.

        So yes – what is the encore? The mother of the mother of all stimulus packages – why not just really go for it – try 100 trillion – I am sure Paul Krugman would say that’s the answer.

        No matter how much stimulus is unleashed fools like Krugman will always say ‘ it’s just not enough -we need more more more’

        At some point this is going to explode like 50000 tonnes of dynamite.

  7. Paul says:

    Glencore Xstrata, the world’s fourth biggest miner, weighed heavily on its peers after the natural resources titan said that it would shut one of its Australian coal mines.

    The Switzerland-based company blamed the falling coal price, which is a its lowest level since 2007, higher costs and a strong Australian dollar for suspending production.

    Those factors have meant the Ravensworth mine, which last year produced 2.1m tonnes of coal, is no longer financially viable, the company said. The decision comes despite steps to try and improve profitabilty at the mine.

    Since 2011 declining coal prices have forced miners including Glencore’s rivals BHP Biliton and Anglo American to review their operations, shelve expansion plans and make staff cuts staff cuts.


    • It isn’t just oil prices that are low. Coal is low too, especially in Australia. This makes it sound like China’s demand level is way down.

      Low coal prices are as much production killers as low oil prices!

      • Stilgar Wilcox says:

        Good point, Gail, and speaking of price of oil, here’s a link to an upbeat peak oil .com article
        about how oil price is going to drop to 75 dollars a barrel. I posted a response below on that website that it would be a disastrous scenario because if capex is already dropping at today’s oil price, then at 75 it drops precipitously and we get such a huge drop in future oil supply there would be a permanent drop from peak oil. But of course those writing the article think it would be great.

        • Paul says:

          If oil goes below 75 for anything more than a very short period — fracking is over.

          • Stilgar Wilcox says:

            And when that is over the retirement party is over. That article I was linking above from peak oil dot com is a complete fantasy about how it will be a positive thing to in essence descend from peak oil as we transition to NG & renewables. It’s really getting thick out there with in-denial based articles claiming all sorts of wild ideas about how we are just going to leave oil in the dust. I suppose people tend to cling to any ideas that give them hope in the face of mounting evidence of an impending departure from BAU. Just chalk it up to human nature in which some get it but even more try to dodge difficult truths.

            • Stilgar Wilcox says:


              Federal Reserve Chair Janet Yellen, easing investor concern that interest rates may rise earlier than previously forecast, said the world’s biggest economy will need Fed stimulus for “some time.”

              Yellen said today the Fed hasn’t done enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet to $4.23 trillion with bond purchases.

              “This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers,” Yellen said at a community development conference in Chicago. “The scars from the Great Recession remain, and reaching our goals will take time.”

              Could Yellen’s comments be code for a plan to halt taper?

            • Paul says:

              ‘For some time’ = FOREVER.

              I do not believe the Fed has tapered — I am certain that they are juicing the economy in other ways – if they say they have reduced by 10B at a Fed meeting I suspect they have somehow infused 10B or even more in some other manner that they do not disclose

              Recently it was revealed on Zero Hedge (later confirmed by the MSM) that China has printed 15 trillion dollars since 2009. No surprise to some of us – how the hell does China charge ahead with nearly 10% growth when the world around them is cratered? Of course they were playing a magic trick on the world http://www.youtube.com/watch?v=YW3h4wv8_ko

              Every time QE was running out since it was launched the markets tanked — but this time they are racing upwards — if something looks to be wrong with a picture – there is something wrong with a picture.

              I absolutely believe the Fed has not pulled back at all – and I believe the amount of stimulus per month is far far beyond the 85B peak we were told about – subprime auto loans, disability for anyone who applies, student loans used for shopping — all that and more needs to be added to the 85B.

              What cannot go on forever will not go on forever – but they will try

      • thestarl says:

        I work for one of the other big four and we produce high quality met coal only this week a total of 80 people were retrenched across 3 mine sites and head office and the company spin doctor said this is only phase 1 with another review in June.Over capacity in the Chinese steel market and high Aussie dollar not helping.

  8. Stilgar Wilcox says:

    Watched the youtube video link above last evening. It’s titled ‘peak oil and climate change’, but is mostly about peak oil by Nicole Foss, whom many of us already know. She is very good at articulating peak oil in a bottom line way very fast. Also has suggestions for what to do to prepare.

  9. Stilgar Wilcox says:

    Not sure how the vide got linked up higher, so am posting it again at the bottom of this thread.

  10. ordinaryjoe says:

    The ultimate resource is oxygen, running a close second…

  11. Don Stewart says:

    Dear Gail and All (especially engineers)

    I am interested in electricity in off-grid systems (but my house is currently a conventional grid connected system).

    One issue is cooking. While a wood fired stove makes sense for a lot of people in the US, there might also be a role for solar powered rice cookers. A rice cooker usually draws about 600 watts, considerably less than a kitchen stove or oven. Rice cookers are very versatile, and many people cook with little else. 600 watts is well within range of a modest solar PV system.

    So I searched on ‘rice cookers direct current’ and turned up a couple of interesting items. First, the Asians make small direct current rice cookers, which can be plugged into the cigarette lighter in a car. You’ll see them if you do the search.

    Second, I turned up this interesting research on ‘the DC house’:

    I can’t follow all the calculations, but it seems to me that it turns out that a DC house might be more economical than an AC house with grid connections. If the grid becomes unstable and unreliable, then might it make very good sense for householders to be thinking seriously about off grid houses with the appliances arrayed as in the article?

    Don Stewart

    • ordinaryjoe says:

      I have maintained a rudimentary $300US shake n bake dc 2x 6v golf cart battery system for about 20 years. The golf cart batteries last about 6 years, with two battery changouts I have about $700 US spent for this simplest of systems over the past two decades I have PV panels and a charging interface that I have tested and stored for it but as I am on the grid I maintain the batteries with a smart charger and the PV panels are stored. The archilles heal of every non grid PV system is the batteries. Their lifespan is largely determined by appropriate charging and this can be problematic when the charging is supplied by PV and use of power exceeds charging capability. If you screw up on your use/ charging battery life can be shortened dramatically. It is pretty much a straight DC system as you advocate. Don, you are correct, there are many advantages to not using an inverter to convert DC to AC, power loss among them. I consider my system more of a science project than a replacement for fossil fuels, its primary function to provide LED lighting during an outage.

      Would not a solar cooker cook rice also? My experience has led me to believe that in most cases, most people are far better off investing in insulating a single room of their house very well and providing that room with passive solar heating than investing in a DC PV system. This decision of course depends on the climate where you live. In most cases shutters of some sort must be incorporated in the summer to prevent heating via passive solar. I have seen a lot of people sink a lot of $ into PV systems in an attempt to maintain standard of living post collapse. IMHO they will not succeed. Flip the main breaker on your panel and turn your furnace off for 24hrs. That will show you what you need. Until you have done that you know nothing. Do it again after you have made some changes. repeat as neccesary. Dont freeze your pipes and dont kill yourself with CO from a propane heater or gasoline generator.

      • ordinaryjoe says:

        Just to clarify, the last paragraph of my post was not directed at anyone in particular. Don I enjoy your posts keep em coming.

      • Don Stewart says:

        Dear ordinaryjoe
        My thinking is that a passive solar cooker, combined with an insulated pot, is the basic way to cook in a crowded world without grid electricity or natural gas.

        I have used small solar PV systems to pump water, and I agree that the batteries are a headache.

        I have a couple of reasons to be interested in an ‘intermediate technology’ such as ‘the DC house’ or a movable PV panel connected to a rice cooker. First is the terrible deforestation in some countries as people scavenge for firewood. Second is the observation that people can learn to live without a lot of things….given some time. So if there is some off-grid solution which can ease us into the system we are going to have to live with for a long time, then it may be worth exploring.

        For example, I think the people in the far north ate mostly raw food, before about 1960. But that would be a wrenching change for a crowded city, today.

        I settled on rice cookers because, for a period time, I lived on what I could cook in a rice cooker. You can do a lot of different things besides cook rice in them. And their power requirements are pretty modest.

        Don Stewart

        • ordinaryjoe says:

          A movable PV panel connected straight to a cooker is a good idea! If you do it please post the specifics. Anything thats sans batteries Anything thats a straight resistance load eliminates the need to regulate the voltage coming off the PVs. Whats the voltage- dont care. Does the load rating exceed the power supplied in watts? Yup- good to go. A 600 watt cooker cooks rice in fifteen minutes- attached to a single 50 watt PV will it cook rice in 6 hours? I would still shunt power to different resistance load tho when the cooker is empty. In cold climates a wind turbine attached to the shaft of a suitable electric motor as a generator is feasable also for resistance heating. Simple idea not sure anyone has pulled it off. Whats the voltage- Dont care- Does resistance load exceed max rating of generator in watts?- Yup -Good to go. No shunt required- If it gets too hot open a window.

          • Interguru says:

            One of the holy grails of appropriate technology for poor villages is a kitchen stove that is less polluting and more efficient, including solar stoves.

            ut with no technical advice available, many families simply raise the hearth or install an ineffective chimney, said researcher Elizabeth Klasen. Those measures have no impact or could even make emissions worse. Klasen is working with Checkley on a study comparing locally built and commercially available stoves that are meant to increase fuel efficiency and lower emissions.

            Smith doubts that they will see a significant improvement.

            “I’ve seen so many ‘improved’ stoves come and go that I’m cynical,” he said. “People use the word ‘improved’ as though it’s magical.”

            Field supervisor Angela Huamán lights a stove that will be tested.
            Engineers and development workers have been experimenting with cookstove designs at least since the 1980s.

            from Killer cookstoves: Indoor smoke deadly in poor countries; cleaner stoves elusive.

  12. jrwakefield says:

    Gail, as per human caused global warming, you should read this:


    I just finished David Archibald’s The Twilight of Abundance. Anyone interested in what the future could be because of peak oil should read this book. We can save ourselves if we build Thorium reactors.

    • Paul says:

      If there was something that could save us – Thorium reactors or otherwise – don’t you think that venture capital funds would be pouring in billions? Why wouldn’t the Fed take a few hundred billion from the trillions it is printing and fund such technology?

      After all, when the SHTF civilization collapses – cash becomes worthless – why not go for the hail mary pass – just dump a fortune into anything that might save the day?

      Of course governments know there is no replacement for oil (try making pesticides and fertilizers without oil and gas for instance)…. that is why they don’t bother with pie in the sky ideas — their only response is to print money and keep interest rates at zero – because this delays what is absolutely inevitable – total global economy collapse.

      Not if – but when.

  13. VPK says:

    More and more alarm bells are ringing the warnings of the shock crash that is upon us all:


  14. Pingback: Ex govt adviser: “global market shock” from “oil crash” could hit in 2015 | Southern Energy and Resilience

  15. Quitollis says:

    An interesting article on how the Russian far right is driving foreign policy in Ukraine and elsewhere. It is beyond funny that the pro-Russian propaganda media hides that while calling the entire interim government of Ukraine “fascist”. For instance, the far right LDP has 15% of Duma seats and Zhirinovsky is the deputy speaker of the Duma. The deputy PM Rogozin is also far right.


    The success of the far right, however, has not been simply to elevate Zhirinovsky in the Duma or to swell the crowds of neo-Nazis who march in Moscow and other major cities. Rather, the far right has been able to shape the very mainstream of Russian policy.

  16. Don Stewart says:

    Dear Gail and Others

    Here is a very good essay by David Holmgren, the Australian Permaculturist, on Food Security…Don Stewart


    One essay can’t cover everything, so the following comment is not a criticism. David’s discussion of urban and suburban gardening, which is intensive as compared to the less intensive growing of staple crops, also affects our ability to achieve higher recycling rates for material resources. For example, in Nature, a phosphorus atom is recycled 46 times before it is lost to ocean sediments. But in industrial agriculture, much of the phosphorus is never even used once to produce food…it simply washes into the sea and produces pollution. Similarly, nitrogen can be produced by certain bacteria using special enzymes…or it can be produced by using enormous amounts of fossil fuels. For both phosphorus and nitrogen, skillful gardening is a way to move the dial closer to what Nature achieves. Meanwhile, better large scale farming methods are also being used by innovative farmers.

    • Calista says:

      Indeed, I am half way through reading “Farmer’s of 40 Centuries” written back in the 1910 or so timeframe. He tours Japan, China, Korea and details their farming practices. Much of what is described there is exactly what Permaculture is now advocating. I find the pictures fascinating and the baskets in the pictures beautiful. Not everything he writes would agree with our current science and research based understanding of soil, nutrients, etc. But it is surprisingly close and how he observes the conservation of nutrients, fuel, etc. is, maybe, where some of us will end up practicing on a day to day basis. I would recommend it as part entertainment and part a fascinating window into farming before modern oil, coal, gas were adopted.

      • Don Stewart says:

        Dear Calista and Others
        In the article, David Holmgren speaks favorably of Dumpster Diving.

        After I posted this, I was talking to my daughter. A small farmer friend of hers who raises a couple of hogs was getting mash from a microbrewery to feed his hogs. The microbrewery gets rid of waste and the small farmer gets cheap, nutritious feed. I imagine David would approve.

        But now the Food and Drug Administration is either going to require, or already has issued rules, requiring the microbrewery to dry the mash before they give it to the farmer. The microbrewery isn’t willing to go to the extra expense, so the mash ends up as just plain waste.

        Only in Washington, DC can a win/win be turned into a lose/lose. There are several achilles heels in terms of plans to relocalize food. One of the biggest is the utter malevolence directed at the idea from the United States Government.

        Next, we will have a ‘padlock requirement’ of food waste bins to make sure that no poor people take the free food, and instead line up for food stamps like good citizens should.

        Don Stewart

        • Interguru says:

          There is the reason behind it.

          The proposed rule is aimed at reducing the human and animal health burden by (1) reducing the risk of serious illness and death to animals, and (2) reducing the risk of adverse health effects to humans handling contaminated animal food.

          An improved animal food safety system can reduce the number of recalls, reduce the risk of adverse health effects related to contaminated animal food, and reduce the losses of contaminated animal food ingredients and products.

          It is a trade-off. I do not know the details of the hazard. I do know that the FDA does have a backlog and chooses which problems to attack.

          The deadline for comments is tomorrow, March 31.

          • Don Stewart says:

            Dear interguru

            Here is my point. In a world of relocalized food, the seller and the buyer likely know each other. If a hog farmer wants to buy wet mash and feed it to his hogs, because he trusts the brewery in terms of its handling of the mash, a world without a lot of fossil fuels simply cannot afford to get in the middle and start to tell both parties what to do.

            The FDA assumes that everything is simply a part of an anonymous ‘supply chain’ where the buyers and sellers do not know each other, have no reason to trust each other, may only be doing business through intermediaries, will never see each other, may be on the other side of the world from each other, etc. I really don’t care very much what the FDA tells such people to do.

            I do want the FDA to stop micromanaging the relationship between a small brewer and a small farmer.

            And lots of other relationships. For example, requiring a woman I know to cook things she sells at the farmers market in a commercial kitchen which she has to pay high rents to get access to. I have eaten in her dining room, and I have a pretty good idea that she isn’t going to poison me. Making her pay for a commercial kitchen is just more expensive red tape.

            If we take the collapse scenarios seriously, these kinds of overbearing regulation simply have to stop. Unfortunately, I see no indication that the government ‘get’s it’. John Kerry recently complained that the US was acting like a ‘poor country’. Yet most of the people who comment here would use the words ‘bankrupt country’.

            Don Stewart

            • Interguru says:

              The proposed rule exempts “A facility that has animal food sales averaging less than $500,000 per year during the last three years.”

  17. Quitollis says:


    Riot police called in as violent clashes break out across France after far-right National Front win dramatic gains in local elections


    • Paul says:

      Interesting development – we have seen over the past few years many protests against austerity yet they all seem to die out eventually. The authorities look to be willing to use the heavy hand if necessary – see Egypt where the government has no problem to kill hundreds if not thousands of people if necessary to put down any opposition.

      I am left wondering – do we eventually get a ‘French revolution’ on one of these countries (which inspires others) – or do the people react like beaten dogs and just accept that this is the way things are now and cower under the boot?

      I have a friend who worked as a senior UN observer in Gaza for a number of years some years ago and from what he has observed, oppressed populations when faced with overwhelming force essentially do lie down like beaten dogs.

      The Palestinians are virtually powerless against their Israelis who illegally occupy their lands – and for the most part do nothing of significance to oppose Israel. They live in appalling conditions with no jobs or prospects – they are a beaten people.

      When I was in Egypt about 6 months ago I had a chance to speak to some of the student leaders – they agreed their revolution had failed – they were actually hoping for a ‘hunger revolution’ now – a situation where the people rise enmasse against the dictatorship and destroy the entire system (a French revolution type situation) taking back the country from the cronies and the military.

      So far we have seen nothing of the sort – it is one thing to take down the front man (Mubarak) but another to take down the system – Mubarak was not the system – the system is backed by the military with US support. That is a whole different ballgame and taking that down would involve a massive uncontrolled uprising and likely a failed state situation. The Egyptian people appear not willing to go that far – yet….

      Is that what will happen to as this situation progresses in western nations – will the people just accept their lot or will they react with extreme violence and attempt to destroy their governments and economies?

      • xabier says:

        We should all be very wary of violent revolutions as we know how they tend to turn out: just a new rider in the saddle with even sharper spurs, or the old one back for revenge after a while. The Egyptian farce underlines this, and as for the Ukraine…!

        Spain is very interesting at the moment. It is well on the way to being an autocratic police state.

        The government are not happy with protests that ‘damage the image of Spain’, (even though much of the violence certainly originates with police and security agents provocateurs) and are severely restricting the rights of protestors, with some even proposing setting aside a special zone far from Madrid’s centre in which to protest to their hearts’ content without causing ‘economic disruption’…! ie You can have your right to protest, but just do it where no-one can see….

        Under new laws. participants in protests run the risk of incurring fines of many thousands of euros if there is violence at the event (this is where the provocateurs come in….) Private security guards are being invested with the rights and powers of police officers in certain situations: in other words, law and order maintained by night club doormen….. (from security companies owned by politicians and their business backers).

        Everyone knows that in a Spanish police station -as in Egypt – you are in for a good kicking if they feel like it, and the judiciary is complicit in this, – there is no point in protesting ill-treatment when you come to court – so this does help to keep people under.

        A low point in protests last year was the film of police hitting a 14 year-old boy lying on the ground, with a woman trying to protect him -they reached down to use their batons and kick him. And hitting the backs of protestors as they peacefully obeyed police orders to clear an area.

        It is becoming a commonplace to say that this is ‘worse than Francoism.’ And yet ordinary people on the Right often say that ‘what we need is another Franco’.

  18. Don Stewart says:

    Dear Gail and All
    Here is an interesting book review:

    The thesis of the book, written by a well known science writer, is that we can sequester enough carbon in the soil to reduce the atmospheric concentration of carbon dioxide and ‘solve’ the climate change problem. The methods which would be used would also greatly reduce the use of fossil fuels in agriculture.

    I haven’t read this book as yet, but I recognize a lot of the proposed solutions. I have written about them here. Albert Bates has said similar things, particularly with regard to biochar.

    My two cents worth of opinion is that we have to stop cultivating. Cultivating just stirs up the microbes, who eat whatever carbon is in the soil (except maybe for the biochar). Many ‘organic’ farmers around here have cover cropped and then plowed for 20 years, and have zero carbon in the soil to show for their efforts. But the agricultural colleges still say that one has to ‘turn under’ the cover crop. I think that Ohlson is talking to the very best farmers and showing us what ‘best practices’ can do.

    Don Stewart

  19. MJ says:

    The IPCC 2 volume report is being released tomorrow and even if we stop all emissions now sea level rise will be a major problem for us to adapt to:


  20. Interguru says:

    I am not an economist, but peering through the jargon, I think this says that a sudden reduction in oil supply, while interest rates are near zero, will lead to a contraction of the economy. Can someone tell me if my translation of Are negative supply shocks expansionary at the zero lower bound is correct?

  21. Don Stewart says:

    Dear Gail and All

    Yesterday I noted the publication of the book The Soil Will Save Us. It may be useful to put some of the numbers into perspective. I have previously noted that photosynthesis provides roughly 10 times the energy supplied by fossil fuels (from Lenton and Watson). The following numbers are from Tyler Volk’s books Gaia’s Body and CO2 Rising..

    Pg 109 Gaia’s Body “This mutual influence between soil and life has prompted the Dutch soil scientist N. van Breemen to call soil a ‘biotic construct favoring net primary productivity’ ”

    Pg 79 CO2 Rising:

    Carbon emissions from fossil fuel burning, per year, circa 2008 is 8 billion metric tons per year.
    Photosynthesis uptake of carbon is 60 billion tons per year
    Land use changes are estimated to release 1.5 billion tons per year (with considerable uncertainty) e.g., plowing and deforestation

    Pools of carbon in billions of metric tons:
    Atmosphere 800
    Land Plants 600
    Ocean Life 2
    Ocean Surface 800
    Deep Ocean 25,000
    Soil 2,000

    Pg 122 and preceding, Gaia’s body
    ‘Computing over a depth of just ten centimeters (where most of the action of life occurs) and for a moment neglecting the clay, I derive a surface area index equiavlent to 2000 Earth areas. Adding the bacteria-sized clay particles boosts this number to 11,000 Earth areas. To calculate a full meter of depth, multiply these numbers by 10.’

    My note: the significance of surface area traces back to the fact that surfaces are where exchanges and thus life happen. For example, a leaf exchanges carbon dioxide and oxygen. Root hairs are where the action is in the soil. The point is that Life creates enormous surface areas which have profound influences on the cycles of Nature. For all of you cursing the clay in your lawn, keep in mind that clay particles are also biologically active in ways that sand grains are not.

    Those who look at biological farming and gardening as our potential saviors look at the enormous fluxes and the size of the reservoirs and the enormous power of the biologically active surface areas and ruminate about the ways we might nudge Nature in ways that benefit humans.

    Don Stewart

    • xabier says:


      Alas, the power in Nature is not that which gives our ‘leaders’ and masters their kicks in life.

      • Don Stewart says:

        Dear Xabier
        Many years ago I heard the novelist Larry McMurtry talk. McMurtry was born in Texas, and wrote a lot of stories about the frontier. Texas was an independent country from 1835 to 1845. It needed a capitol building, but had no money. So it got some Scottish investors to agree to build a capitol building, and in return gave them millions of acres of land which was overrun with Comanches, at the time. After the Civil War, the US Cavalry either killed the Comanches or drove them to Oklahoma. So western Texas became the land of gigantic ranches on vast grasslands. For about 10 years, there were no fences. It was called ‘open range’ and cows were branded with the insignia of a specific ranch. Then, the ranchers figured out that perhaps they could make more money with fences.

        McMurtry said that the ranchers realized pretty quickly that they had destroyed ‘Eden’, but they could not figure out a way to go back, once they had done the dirty deed. I believe that greed is still classified as a deadly sin, but few people want to think about that anymore.

        When I contemplate the enormous fluxes of energy and materials that Nature provided for the early humans, and see how humans managed to turn that into slave labor in coal mines and textile mills and now into fraudulent banking maneuvers, it always reminds me of McMurtry’s comments. Even a little bit of reflection would lead one to the conclusion that we went very wrong. But we can’t figure out how to get back to Eden.

        On a more optimistic note, I think it is interesting to see how small changes in the fluxes could help us immensely with some of our problems.

        Don Stewart

  22. Pingback: The People I Turn To Re: Energy Issues by Richard Ha | Ahualoa Community Association

  23. Paul says:

    The impacts of global warming are likely to be “severe, pervasive and irreversible”, a major report by the UN has warned.


    Perhaps the frog is already boiled – but he doesn’t know it. i.e. we are already dead.

  24. Roger Blanchard says:

    Could it be that predictions of future shale gas and tight oil production by the Energy Information Administration (EIA) may diverge significantly from actual production?

    I wrote a paper awhile back illustrating their poor prediction for North Sea oil production from the late 1990s (see http://www.resilience.org/stories/2011-04-19/look-back-north-sea-oil-production-projections). I’ve also shown that their predictions for the Gulf of Mexico and Mexican oil production were also not very good (http://www.resilience.org/stories/2012-02-17/how-reliable-are-us-department-energy-oil-production-forecasts and http://peak-oil.org/2010/01/mexican-oil-production-continues-to-dive/). Unfortunately, nobody in the media looks back at EIA oil production predictions.

    In terms of tight oil production in the U.S., it appears to me that the EIA prediction may diverge significantly from actual production rates in the future. Most of the oil production increase in the U.S. since 2010 has come from Bakken and Eagle Ford shale formations. In 2011 I predicted that Bakken would peak in 2014 +/- 1 year. Recently international petroleum geologist Jean Laherrere predicted Bakken would peak in the fall of 2014. Also, David Hughes, who has done an extensive analysis of Bakken, has revised his predicted peak to 2015.

    There is increasing evidence that a Bakken peak will be coming soon. It’s important to note that about 90% of Bakken oil production in North Dakota comes from 4 counties: Mountrail, McKenzie, Williams and Dunn. The reason for that is because that is where the oil is. Initial production rates in Bakken counties outside of the top four counties drops off significantly which I recently showed (see http://peak-oil.org/2013/11/analysis-of-well-completion-data-for-north-dakotas-bakken-formation/).

    The general assumption concerning Bakken and Eagle Ford is that if the number of new wells continues to increase, production will increase until the play is totally saturated with wells. My argument is that as the fruitful area gets saturated with wells, I expect production to decline because wells outside of the core area will not be as productive. Based upon my calculations and assuming 500 acres/well, the core area will be pretty well saturated with wells by the end of this year.

    Compounding the problem of less productive wells in the future is the fact that tight oil wells decline rapidly (see http://peak-oil.org/2013/11/analysis-of-well-completion-data-for-north-dakotas-bakken-formation/). There are more and more wells that are in decline so an increasing number of new productive wells have to be added to negate the declining wells. If the new wells decline in initial production, that just means more wells have to be brought on-line more rapidly. At some point, the new wells can’t keep up.

    Based upon data in the Bakken Weekly, 964 wells were completed from the week of Jan. 1 through the week of March 17 of this year and the sum of the initial productions was 588,539 b/d. That compares to 586 wells and 465,877 b/d for the same period in 2013. The ratio of 2014/2013 wells is 1.65 and the ratio of 2014/2013 initial production is 1.26. That indicates that initial production/well is declining. For the month of March, the ratio of 2014/2013 wells was 1.69 and the ratio of initial production was 0.86.

    There have been several media articles recently stating that oil companies are losing money on tight oil projects and that oil companies are starting to cut back. If that indeed happens, that would make it even more likely that tight oil production will decline in the near future.

    Recently I read an article which stated that wildcatters were leaving the Bakken region and going to east Texas to look for oil. If there were a lot of fruitful areas to drill in the Bakken region, why would wildcatters want to leave North Dakota?

    What I’ve stated about Bakken applies to Eagle Ford as well. Production ramped up a little later in Eagle Ford but the intensity of the drilling activity has been higher than in the Bakken region so I expect a peak there in 2014/2015. It won’t be long before we find out if that is correct.
    The oil industry has drilled wells in the best shale plays as fast as humanly possible and production ramped up rapidly. The down side of that is that production can also decline rapidly after the peak. Jean Laherrere projects that Bakken production will decline ~80% by 2020 from its peak. David Hughes projects that Bakken production will be essentially zero by 2035, 21 years from now.

    • You are quite right–EIA estimates are likely high. They have a definite high bias. We are likely not far away from peak in the Bakken and Eagle Ford, for several different reasons–poorer well productivity, financial difficulties, can’t keep borrowing because banks won’t lend more.

  25. devinxcombs says:

    Oil markets certainly have a large correlation with economic growth and performance, and analysis of the correlation between the past 11 recessions and oil prices supports that claim. I think the idea that we are running out of oil is exaggerated, but I do think we have peaked in cheap oil. As we continue to develop more expensive ways of extraction, oil prices will increase. Oil price increases will increase the incentives of oil producers to continue to find new ways to get oil and we get a continuous cycle. The instability of oil markets is dangerous to any economy, especially economies that are on the edge of growth/recession. Developing more secure supplies is crucial, whether it be from more reliable producers of oil or domestic production. Decreasing our risk by reducing our dependence on volatile markets while developing alternate strategies to replace is oil is a good place to start.

    • Paul says:

      Actually that is not the case – Exxon and Chevron last month announced capex reductions because they cannot make money even with oil at $100 or so.

      And the consumer is unable to deal with $100 — so the economy cannot tolerate even higher prices.

      4 articles for reference:

      Why peak oil signals the world’s end, or at least the one we know – Author Steen Jakobsen, Chief Economist & CIO, Saxo Bank

      This is old story and, as the world still goes around, one could dismiss all this analysis. However, what is new is that business conditions are becoming more challenging for the oil majors as figure 7 suggests.

      Indeed since 2009, the capital expenditures of ExxonMobil, Royal Dutch Shell and Chevron have increased by 39-89 percent while their production has stalled. This is the balance-sheet-based proof that the peak-oil is happening now.

      Indeed, according to Kopits, total upstream industry spendind since 2005 has been USD 4 trillion (about USD 2.5 trillion spent on legacy crude oil production), and legacy oil production has declined by 1 mmb/d since 2005. By comparison, between 1998 and 2005 the industry spent USD 1.5 trillion on upstream development and added 8.6 mmb/d to total crude production.

      This declining energy return in energy production, which is nothing but the by-product of declining/exhausting oil reserves and the very fact we are experiencing the peak-oil, drives the whole economy down.

      So how all this relates to the “secular stagnation” scenario and all the fall in total factor productivity. Well, this is where things get a little bit technical and where our tale comes (finally!) to an end:


      ExxonMobil, like Chevron and Royal Dutch Shell, will cut spending in 2014 after spending heavily over the past few years. That will make it tough to reverse last year’s decline in production.

      Oil and gas behemoth ExxonMobil (NYSE: XOM) upset the market on March 5 when it told analysts it would cut spending this year. The news was not well-received, and the company’s shares fell hard on the day of the announcement. ExxonMobil is tightening its belt this year, and there are clear worries that there’s a lack of suitable investment opportunities out there for the taking.

      Reduced capital expenditures is a recurring theme going on right now across the oil and gas industry. Other global super-majors including Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS-B) are adopting similar strategies this year, so it’s not as if this is an ExxonMobil-specific issue.


      THE DECLINE OF THE WORLD’S MAJOR OIL FIELDS: Aging giant fields produce more than half of global oil supply and are already declining as group, Cobb writes. Research suggests that their annual production decline rates are likely to accelerate. http://www.csmonitor.com/Environment/Energy-Voices/2013/0412/The-decline-of-the-world-s-major-oil-fields

      The Saudis have also made public plans to start injecting carbon dioxide into the world’s largest oil field, Ghawar, no later than 2013. CO2 injection is what you do when an oil field starts yielding progressively less oil. It gooses the output…for a little while) http://www.forbes.com/sites/greatspeculations/2011/03/04/the-truth-behind-saudi-arabias-spare-capacity/

    • The issue is that wages do not rise, even as the cost of oil extraction rises. If oil prices rise too much, we end up in recession. If oil prices don’t rise enough, drillers quite and go home. We are very close to this problem. We need cheap energy sources that can use the same devices we have today, so we don’t have the cost of building new cars/trucks/airplanes/farm equipment/building equipment. We really don’t have many alternate strategies to choose from. They are all more expensive than we can afford.

  26. timl2k11 says:

    Interesting graph: http://upload.wikimedia.org/wikipedia/en/7/7c/Ultimatereserveoilprojections.gif
    It shows (assuming a 2% growth rate in oil consumption) that even if one assumes there is twice as much oil as Colin Campbell estimated (with a peak having occurred in 2010) that only pushes the peak 14 years out. Harper (Harper who? I’m not sure graph doesn’t say) assumed 50% more economically recoverable reserves than Campbell which only pushes peak out 5 years (2015).

    • I would argue that in nothing says the shape of the curve will be as shown, though. A whole host of bad effects give rise to the peak. The actual shape will be much more downward that the graph claims.

      • timl2k11 says:

        I absolutely agree. I was thinking about this the other night, it will look more like your “shark fin” collapse. The way I envision it, society will desperately “pull forward” production so the graph will have an undulating plateau, the peak decline will begin later than expected, and then the amount of economically feasible reserves will suddenly drop as the civilization around it collapses. In other words I think the amount of economically recoverable reserves is grossly overestimated.

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